Before diving into the market today, we wanted to address a common question we’ve been getting in recent weeks: “Why did you sell XYZ from Top Ten this week? It continues to act well—is something wrong?” First and most important, I’m happy to answer any and all questions, so if you ever are unsure of something, don’t hesitate to email me at mike@cabotwealth.com.
Back to the question at hand, the simple answers are we’ve been trying to (a) slowly prune the list of good-not-great performers, (b) take some profits on the way up, rather than just wait for everything to fall back to stops, both of which will (c) help keep the list manageable (i.e., not 100 stocks). Of course, we’re also trying to hang onto all or most of our top performers, too.
Thus, many times, the stocks we’re selling haven’t done anything obviously wrong, but may be lagging some industry peers, have shown solid but not amazing action and most are extended to the upside. If you want to instead hold onto these stocks and simply trail a stop, there’s nothing wrong with that, and we’re happy to suggest some stop levels if you email. But we think a little pruning here and there on the way up is sound.
With that out of the way, let’s get to the market. This week has continued the trends of the past three months, only on steroids—as of this morning, the leading Nasdaq has had a great week (up nearly 3%), but the S&P 500 is only up a smidge on the week, while the broader indexes have lagged badly (S&P 400 Mid-Cap is down 2%, S&P 600 Small-Cap is down more than 3%).
Thus, the dichotomy in the market continues, so let’s look at both areas.
First, growth stocks and the Nasdaq remain in steep uptrends; as trend followers, we can’t argue with that. However, after 16 weeks up off the bottom and many massive moves, it’s hard to find decent entry points as most stocks are extended both short- and intermediate-term. Thus, we’re mostly fine riding things higher, albeit taking some profits on the way up (as described above).
The broad market is the bugaboo at this point—believe it or not, the overall market’s intermediate-term trend is now on the fence, with many indexes testing their key 50-day lines. That’s definitely something to watch, and if these 50-day lines give way, it would raise the risk that growth stocks will be “infected” by the broad market.
To be fair, though, most other primary and secondary indicators are still looking good, including our Aggression Index (no movement into defensive titles), our Two-Second Indicator (tame number of new lows … though they did pick up a touch yesterday) and most sentiment measures (money is still pouring out of stock funds and ETFs).
Put it all together, and we’re still mostly bullish—leading stocks are strong and the market’s main trends are up, and those are the two most important pieces of evidence to us. That said, it’s vital to keep your feet on the ground here, as the risk of some sharp pullbacks in extended leading stocks (either as part of a rotation into cyclical names or as part of an overall market correction) is rising.
We’re likely to pull down our Market Monitor to a level 7 come Monday given the uncertainties, but we advise you to stick with the game plan—look for good entry points on the buy side and hold onto your best performers, but trail stops and don’t be afraid to book some partial (or full) profits on the way up, either.
SUGGESTED BUYS
Bill.com (BILL) can be thin and choppy, but we like the solid-volume advance the stock has shown during the past few weeks—it’s not soaring, but making steady progress with brief pullbacks along the way. You could nibble here, though we’d prefer to get some on dips into the upper 80s with a loose stop (75 or so).
Precious metal stocks are flexing their muscles again after a few weeks of rest, and Pan American Silver (PAAS) looks like one of the leaders—it popped to new highs this week on good volume. It’s a touch extended, but we’re OK taking a swing at it around here or on dips with a stop in the 27 area.
We’re actually seeing some good setups and recent breakouts from homebuilders. LGI Homes (LGIH), which we wrote up nearly three weeks ago, looks like one of the leaders (if not the leader). We’re fine grabbing some around here, with a stop in the mid/upper 80s.
We continue to like the action in Seattle Genetics (SGEN), which after a brief pullback in late June has pushed back to new highs this week, though it is pulling in this morning. Dips into the low/mid 170s would be tempting, with a stop just under the 50-day line, which is now at 160 and rising.
SUGGESTED SELLS
We have no specific sells right now, but don’t forget to book some partial profits here or there (Tesla (TSLA) would be one example; another would be Novovax (NVAX)) if you have them. Meanwhile, we’re keeping an eye on some just-OK performers like Mersana (MRSN) and Ciena (CIEN—hasn’t hit a new high in weeks), along with others, that we could prune come Monday.
SUGGESTED STOPS
Autodesk (ADSK) near 220
Bandwidth (BAND) near 117
BJ’s Wholesale (BJ) near 33.5
Carrier Global (CARR) near 20.5
Ciena (CIEN) near 52
CrowdStrike (CRWD) near 92
Immunomedics (IMMU) near 32.5
Inphi (IPHI) near 110
LGI Homes (LGIH) near 80
Mersana Therapeutics (MRSN) near 19
Neurocrine Bio (NBIX) near 118
Nvidia (NVDA) near 342
PagSeguro (PAGS) near 33
Pan American Silver (PAAS) near 27
Pelaton (PTON) near 50
Restoration Hardware (RH) near 225
Seattle Genetics (SGEN) near 158
Teladoc (TDOC) near 165
Tesla (TSLA) near 990
Thor Industries (THO) near 91
Zoom Video (ZM) near 210
Zscaler (ZS) near 96